95 F. 269 -

95 F1d 269

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Case Text

IN RE

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consideration. And such is the construction that I am disposed to give these sections. If all payments of money made within four months prior to an adjudication in bankruptcy may be recovered from a creditor simply by showing that the bankrupt intended by such payment to cheat, hinder, or delay his other creditors, it would prove a serious embarrassULent to commercial transactions. No person, though believing that his debtor was solvent, and that the payment was made to him without any intent to hinder, delay, or defraud his other creditors, could safely receive a payment of a pre-existing debt. A construction working such inconvenience to legitimate busiuess ought not to be given to the statute, unless its language is so clear and explicit as to require such a construction. Clause e of section 67 is not sufficiently clear and specific to justify the construction contended for. It follows, therefore, that the exceptions to the several answers must be overruled. So ordered.

In re MILLS. (District Court, D. Indiana.
No. 65.

BANKRUPTCY-P ARTNERSHIP-INDIVIDU AI, AND FIRM CREDITORS.

July 13, 1899.)

'Where a partnership has been dissolved by decree of a state court, and its affairs wound up, and all its assets distributed to its creditors, and no partner remains solvent, and afterwards one of the partners is adjudged bankrupt in his individual capacity, creditors of the firm who proved their claims and received the dividend in the state court, and who do not offer to sur.render the same, are not entitled to participate in the distribution of the bankrupt's estate, as to the residue of their debts, until all his individual creditors have been paid in full.

In Bankruptcy. This is a proceeding for the review of the decision of Clay C. Hunt, a referee in bankruptcy, brought by Loeb & Koch, H. & I. Loeb, the Kentucky Jeans Clothing Company, Stearns & Packard, Louis Stix & Co., S. L. Weiler, the Alto Shirt Company, Isaac FaIlor Sons & Co., Hendrickson Lefler & Co., Mendel & Co., and }!eyer, 'Wise & Kaichen, creditors of the late co-partnership of H. J. Foutty & Co., of which firm the bankrupt was a member. The referee's findings of fact and conclusion of law are as follows:
(1) The bankrupt, Elizabeth A. Mills, is indebted to claimants for goods and merchandise sold and delivered by claimants to H. J. Foutty & Co., a partnership composed at the time of said sales of H. J. Foutty and said bankrupt. (2) Said partnership was dissolved by a decree of the Fayette circuit court in the state of Indiana, being a court of competent jurisdiction both of the persons and of the subject-matter, and the affairs of said partnership were finally settled in said court. (3) There are no assets of said partnership. (4) Said H. J. Foutty, the other member of said partnership, is insolvent. (5) All the above claimants filed their claims against said partnership with the receiver of the state court, and received a dividend of 55 per cent. thereon. (6) The assets of the said bankrupt will probably be insufficient to pay her individual debts. Conclusion of law: The claimants are not entitled to share pari passu with tile individual creditors of the bankrupt, but are only entitled to participate in general distribution of the surplus of the assets of said bankrupt's estate

. ,:S-i\.l{ER, creditors allege error Ill}llE;lfpregolllg of ,l/;l.w.,. 1V'hether, in, any caSe, a paJ,'t;I;lers[u1jl whollasprovedhis claim ;agllinsftlle, estate of a part*er WllO,PllS peen adjudge<J.a bankrupt in his individllfll capacity, will. pe PerJI!,ifted to in the distribution of thelndividual estate of pari passu with his indJvidllal cw:lltors, it ,is not nee: . essary to determine. The rule in, this kind of cases is stated by Chancellor Kent: '
!,"fhejoint creditors cl,aimupon the joint fund, in the distribution of the assets of bankrupt or, insol'Vent par,tn\lrs, and the partnership debts are to be settled before any division Of the funds takes place. So far as the partnership property has been acquired by means of partnership debts, those debts have, in equity, a priority of claim to be discharged; and the separate creditors are onl3' entitled, in equity, to seek pa:rment from the surplus of the joint fund after satisfaction of the joint debts. The equity of the rule, on the other hand, equally requires thattlie joint creditors should only look to the surplUS of the separate estates of,the:partners after payment of the separate 3 Kent, Comm; (10th Ed.) p. 78. '

There is an exception to this rule'i'ecognized in many cases, which is relied upon by the petitioning, oreditors. That exception is this: . That' where" there is joint property,and no livings()lvent partner, the 'j()intcreditors are entitled to share the property pari passu with the separate. creditors. The general rule is recognized as governing in the distribution·of the bankrupt's estate under the present bankruptcy lict in the case of In re Wilcox" 94 F'ed. 84, where it is held that, when a member is adjudged a bankin his individual capacity, creditors of the firm are not entitled to receive dividends out of his separa;te estate until his individual creditors have been paid in full; and that this rule prevails, notwithstanding the fact that there are rio partnership assets. This is also the rule which has prevailed in this state .for nearly 50 years. Weyer Y. Thornburgh, 15 Ind. 124: Warrenv. Able, 91 Ind. 107; Warren v. Farmer, 100 Ind. 593. In the case of Warren v. Farmer, supra, the supreme court of this state ruled that partnership creditors, even though there are no partnership assets and no living solvent p.:'1rtner, cannot participate with individual creditors in the individual estate ofa deceased'partner. While there are cogent reasons for the application of the general rllle as recognized in thi/,! state in the distribution of apankrupt's estate situatedin this district, still theeourt will not now decide that there may notarise cases, under which the exception above noted may apply. In the present case, however, the peti55 per centum on their claims tioning creditors have out of the partnership assets. '01ey h\lve not sllrrendelle\! or offered to surrender the advantage which they. have thus received. They insist on retaining this' advantage, and on participating; upon the reeidue of their el'aims, with, the In,(lividual' creditors in the distribution of the individual estate of the bankrupt. To permit this to

IN BE B,A.N GAnRIEL BANATOIUUM 00.

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be done under these circumstances would, hi the opinion of the court, be clearly against equity and good conscience, and therefore will not be allowed. Thedechihm of the referee will be affirmed, at the costa of theaboye creditors. So ordered.

A corporation which owns and maintains a prlvatehoepltal for con· sumptlves, conducting Its buslneslJ' f()l' profit,and not 8.8 a charity, furnish· Ing to Its patients the usual accommodations of a hotel, and treating their diseases chiefly by the Inhalation of an antiseptic vapor, chemically prepared on the premises, though not a "manufacturing" corporation, within the meaning of section 4 of the bankruptcy act (30 Stat. 547), Is a corporation' "engaged principally In trading or mercantile pursuits," and may be ad· judged bankrupt oli involuntary proceedings against It.

WELLBORN, District Judge. The court having heretofore announced its findings in favor of· petitioners, so far as concerns the acts of bankruptcy charged iii the petitioq, the only 9uestion now to be disposed of is whether or not respondent is sucb. a cotiporation as may be adjudged an involuntary bankrupt; or, more specifically, whether or not respondent is a corporation "engaged principally in manufacturing, trading, printing"publishing, or mercantile pursuits." The which respondent ,was formed are set forth in its articles of incorporation as follows;
"(1) To acquire by construction, purchase;'exehange, 01' other means, and thereafter to'own, maintain, operate,a:nd oarry' on, or to sell or'otherwlsedlBpose of ,sanatoriums andotherestabUshments 'SUitable for the care and treatment of the sick. (2) To aequlre by purchase 'or other means, and thereafter use and employ, or to seHor otherwise disPOfleOf pneumo-chemlc and other systems for .the treatment of . persona atlHcted, with tuberculosis and'other diseases. (8) To acquire, own, hold, sell, convey; and mortgage lueh real and perlonal property as may' 'be necessary, proper, or convenient In carrying on the business of the eorporatlon."

A circular letter issued and distributed by respondent contains the following statement as to its location:
'The San Gabriel Sanatoi'lutn 18 delightfully loeatedbetween the cities of Los Angeles and Pasadena. It Issul'rQunded, With siX acres of flne lawn, shaded with live oak, orange, palm, tropical and semitropical trees and shrubs In' 'profusion. The, building. has one hundred' eomfortable, furnished:'rooms, heated by l!lteam and lighted with gas, together with a cllmai» that Iii unsurpassed, making: an Ideal spot for a health-seeker." .